Search for a New Exchange-Rate Regime

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Science  31 Jul 1987:
Vol. 237, Issue 4814, pp. 489-493
DOI: 10.1126/science.237.4814.489


The regime of unmanaged floating exchange rates was implicitly judged a failure when, with the Plaza Agreement, attempts at cooperative exchange-rate management were reintroduced primarily because of concern at the size of misalignments. Any satisfactory successor regime will need to limit misalignments while retaining the genuine social benefits of exchange-rate flexibility. It is argued that a system of target zones for exchange rates, ideally embedded in a more comprehensive set of guidelines for international economic policy coordination, could best reconcile these needs.

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